Rio, BHP review gems

Rio Tinto’s decision to review its diamonds business has potentially left both of Western Australia’s producing mines on course for new ownership.

The mining giant said the business, which includes the Argyle mine in the state’s north, was being reviewed to ensure it aligned with the company’s strategy of operating large, long-life expandable assets.

Argyle has been in operation since 1983 and is the top producing mine for pink diamonds in the world.

Rio Tinto chief executive of diamonds Harry Kenyon-Slaney said the review was taking place despite a positive market outlook.

Mr Kenyon-Slaney said demand for diamonds was growing strongly and there was a lack of new discoveries limiting supply.

“The process may take some time,” he said. 

“We’re committed to keeping stakeholders informed about any key developments and, in the meantime, are reassuring employees and the governments in the states and countries where we operate that it is very much business as usual.”

Rio Tinto’s announcement follows a move by BHP Billiton in November to also review its diamonds business.

Patersons analyst Alex Passmore believes Rio Tinto and BHP Billiton are using the positive momentum in diamond prices to offload operations that do not fit their strategies.

“The outlook is strong for diamonds but it is more that the demand for the operations is there now and BHP and Rio are taking the opportunity to divest them,” Mr Passmore told WA Business News.

“They are too small to make a big difference on their bottom line.”

WA’s other producer diamond mine, Gem Diamonds’ Ellendale operation, is also on the market after the UK-based miner announced late last year it was under review.

Since buying Ellendale for $300 million in 2007, Gem Diamonds has been hurt by lower diamond prices as a result of the global economic downturn and operational difficulties that have affected production.

In 2011, the company’s production from the mine fell to 121,454 carats from 163,924 carats as grades fell short of expectations.

“While management continues to review all of its options regarding the Ellendale mine and has appointed advisers to assist in this regard, the focus of 2012 will be on ensuring that Ellendale continues to generate cash and to capitalise on production performance through its primary plant-feed section,” Gem Diamonds said in a report.